India Attracts LNG Cargoes as Asia, Europe Buyers Cut Imports

By Dinakar Sethuraman and Archana Chaudhary

April 22 (Bloomberg) -- India may rank among the largest markets for spot cargoes of liquefied natural gas this year as Japan, South Korea and Spain slash purchases.

India faces a shortage of 80 million cubic meters of gas a day, or more than half of domestic demand, even as economic growth slows, said Upendra Datta Choubey, chairman of gas distribution monopoly GAIL India Ltd.

The emergence of India in the spot LNG market may prop up prices that fell 70 percent from last year’s peak, while diverting tankers from the U.S. and Europe. India is importing at least nine so-called spot cargoes outside of long- term contracts in March and April, compared with two from November to February, AIS Live ship-tracking data compiled by Bloomberg show.

“This recession has no effect on demand of natural gas in India,” Choubey said by telephone from New Delhi. “Currently we’re meeting hardly 60 percent of gas demand in India.”

New Delhi-based Petronet LNG Ltd., Royal Dutch Shell Plc, Total SA and GAIL-led Ratnagiri Gas are doubling the country’s import capacity this year at three facilities on India’s west coast, anticipating higher demand for LNG as prices fall.

“India may be the only serious buyer for spot LNG in Asia,” said Tony Regan, a Singapore-based independent consultant who worked for Shell and was involved in spot LNG trades. “Cargoes are turning back from Northeast Asia.”

LNG Trade

Global LNG trading probably declined in 2008 for the first time in three decades, slipping 0.3 percent to about 172 million metric tons, based on preliminary numbers from Alexis Aik, a consultant with Facts Global Energy.

Asia’s demand for LNG, or gas chilled to a liquid for transportation by tanker, may drop by as much as 10 percent this year, Poten & Partners said in March.

Spot LNG sells for $4.60 per million British thermal units, a 47 percent discount to crude oil, JPMorgan Chase & Co. said in a note on April 3. LNG sold for a premium to oil in 2008.

Utilities in Asia paid more than $20 per million Btu last year for spot cargoes, according to official data from Japan, South Korea and Taiwan.

“We should expect a fall in LNG prices to around $6 or so,” GAIL India’s Choubey said. The level is about 70 percent below the record reached last year.

Asian LNG buyers typically pay a few dollars more than gas costs at the U.K.’s benchmark National Balancing Point to attract spot cargoes from Europe and the Americas, according to Andy Flower, an independent consultant and a former BP Plc employee. U.K. natural gas for immediate delivery sold yesterday for $3.68 per million Btu.

China Imports

China, the world’s second-largest energy user, has increased imports of the cleaner-burning fuel to reduce coal consumption and pollution.

China bought three spot cargoes in April after a seven- month halt. Japan, the world’s biggest LNG buyer, reduced spot imports 50 percent in February after the recession lowered electricity demand from manufacturers.

Reliance Industries Ltd. started pumping gas from the Krishna Godavari area off India’s east coast on April 2 and plans to increase production to 80 million cubic meters a day, almost double current output, Indian Oil Secretary R.S. Pandey said.

Reliance’s gas may cost $6.50 per million Btu, cheaper than the $7 per million Btu charged for LNG from Petronet and Shell, said an official from one of India’s biggest fertilizer makers, declining to be identified because prices are confidential. Naphtha, a competing oil-based energy source, costs about $10.50 in Gujarat, India’s most industrialized state, he said.

2010 ‘Worse’

“Next year will be worse for spot LNG because Reliance’s output is expected to rise from 15 million cubic meters a day to 80 million,” said Ballabh Modani, a Mumbai-based analyst at Enam Securities Ltd. “So most of India’s demand will be covered.”

India’s gap between gas demand and production is equal to about half of consumption in South Korea, the world’s second- largest LNG buyer. South Korea’s LNG purchases fell 14 percent in March, according to the Korea International Trade Association.

Japan’s LNG imports dropped 9.5 percent in February, with spot LNG purchases from the Americas and Europe falling more than 50 percent, according to data from the Ministry of Finance. Tokyo Electric Power Co., the world’s biggest LNG buyer, said in March it may cut imports this year by about 9 percent.

Shipments to Spain, the dominant LNG importer in the Americas and Europe, may decline because of a deteriorating economy and plans to start up a second gas pipeline from Algeria, PanEurasian Enterprises Inc., a Raleigh, North Carolina-based consultant, said in a report.

To contact the reporters on this story: Dinakar Sethuraman in Singapore at dinakar@bloomberg.net; Archana Chaudhary in Mumbai at achaudhary2@bloomberg.net.